States Capex Booster May Fall Short This Fiscal

The current pace is “disappointing”, said Sinha, who expected it to pick up on the back of interest-free loans and early release of devolution instalment in August. While total state capex has improved from the sharp contraction in the first quarter, it’s still contracting year-on-year, which is a concern, she said.

India’s capex expenditure stood at a little over 37% in the first half ended September.

Aditi Nayar, chief economist at ICRA Ratings Ltd. is optimistic of a ramp-up in the second half. The first part of Rs 80,000 crore may encourage states to avail the interest-free loans given their differing spending priorities, she said.

While states including Andhra Pradesh, Gujarat, Karnataka, Kerala, and Telangana have not budgeted any spending under the capex loan scheme, it makes sense for them to borrow interest-free money as rates rise, Nayar told BQ Prime.

Gaura Sen Gupta, India economist with IDFC First Bank, also sees back-ended pickup going by past expenditure pattern. From April to August, states have spent around 20% of budgeted capex, similar to the trend in the last three years, she said.

Moreover, states won’t face revenue constraints and they were sitting on a cash surplus at Rs 2.1 lakh crore as on Nov. 4, including borrowings via 14-day treasury bills and auction T-bills.

Tax collections of states, too, rose 33.8% year-on-year from April to August, and they have also received GST compensation arrears (payable till May) of Rs 86,900 crore, Gupta said.

To encourage capital spending, the central government also front-loaded the tax devolution to states in August and November, paying twice the usual amount.

While states are running against time to avail the benefit this year, the government is also considering to continue the capex scheme with an even bigger allotment next fiscal, the Financial Express and Business Standard reported.

BQ Prime awaits the Finance Ministry’s response to emailed queries.

Still, it signals that the central government will retain capex as a key element in its arsenal to support the economy.